Maclab (NZ) Limited v Wilson
[2014] NZHC 1242
•5 June 2014
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
CIV-2014-442-000008 [2014] NZHC 1242
BETWEEN MACLAB (NZ) LIMITED
Plaintiff
AND
PHILLIP JOHN WILSON Defendant
Hearing: 29 May 2014 Appearances:
S Galbreath for Plaintiff
R M Dillon for DefendantJudgment:
5 June 2014
JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
[1] The plaintiff (Maclab) is a mussel farmer and manufacturer of mussel based nutraceutical products. It was incorporated in 1996. Its shareholders commenced the business some 30 years ago and approximately 25 years ago employed the defendant (Mr Wilson) initially on a casual basis but later on a full-time basis, and from around the time Maclab was incorporated, as its manager.
[2] All the shareholders are based in Victoria, Australia. In 2006 they were advised that a New Zealand director was required and appointed Mr Wilson to that position.
[3] After an audit of its accounts in 2013 the other directors of Maclab discussed with Mr Wilson certain issues which had been identified in the audit, and in October
2013 he was removed as a director, and his employment was terminated.
[4] This proceeding was commenced on 21 February 2014. On 25 February
2014, before this proceeding was served on him, Mr Wilson lodged a claim with the
MACLAB (NZ) LTD v P J WILSON [2014] NZHC 1242 [5 June 2014]
Employment Relations Authority (ERA) alleging unjustifiable dismissal from his employment.
[5] On this proceeding Mr Wilson has entered an appearance under protest to jurisdiction. He says the ERA has exclusive jurisdiction to make determinations on the issues raised in this proceeding. Maclab has applied to set aside the appearance. The issue in this case is whether the ERA has exclusive jurisdiction to determine the issues raised in this proceeding.
The statement of claim
[6] In paragraph 11 of the statement of claim Maclab pleads:
In mid-2013 the Broadbents discovered various financial anomalies in the day-to-day management of the plaintiff’s mussel farming operation.
[7] The reference to the Broadbents is to the directors and shareholders of
Maclab.
[8] In paragraphs 12 to 48 inclusive Maclab pleads eight groups of transactions, all said to have been undertaken, arranged or authorised by Mr Wilson, which it calls into question. In general terms it says that Mr Wilson has gained personally from each of the pleaded transactions.
[9] Maclab then pleads three causes of action. In each, the opening pleading is that at all material times Mr Wilson was a director of Maclab. In the first cause of action it is said that Mr Wilson owed Maclab a fiduciary duty to act in its best interests. In the second it is said that Mr Wilson owed Maclab a duty under s 131 of the Companies Act to act in good faith and in Maclab’s best interests. In the third it is said that Mr Wilson owed Maclab a duty under s 133 of the Companies Act 1993 to exercise its powers for a proper purpose. The transactions pleaded earlier in the statement of claim are cited in each instance as the particulars of alleged breaches of each duty, and on each cause of action judgment is sought on liability, for specific sums of money related back to the impugned transactions and (on some transactions) an inquiry into damages.
The case for Mr Wilson
[10] Mr Wilson says that all the causes of action in this proceeding are within the exclusive jurisdiction of the ERA. He says that throughout the period during which the transactions are said to have occurred he was an employee of Maclab, as well as a director, and that all the transactions are within the definition of “employment relationship problem”. By s 161 of the Act, these are within the exclusive jurisdiction of the Authority.
[11] The term “employment relationship problem” is defined in s 5:
employment relationship problem includes a personal grievance, a dispute, and any other problem relating to or arising out of an employment relationship, but does not include any problem with the fixing of new terms and conditions of employment.
[12] Section 161 gives instances of employment relationship problems. Mr Dillon says that all the transactions of which Maclab complains are within one or other of the given instances. He says that they all relate to, or arose out of , Mr Wilson’s and Maclab’s employment relationship. He says that they did not arise from Mr Wilson’s directorship, and he notes that in paragraph 11 of the statement of claim Maclab specifically pleads that the “various financial anomalies” which are then pleaded as transactions giving rise to the three causes of action, are described as anomalies “in the day to day management” of Maclab’s business.
[13] Mr Dillon says that all the claims pleaded in this case can be advanced before the ERA. He says the Authority has all the powers of this Court in relation to contractual claims, that all the issues raised could be raised as breaches of Mr Wilson’s employment contract, and therefore they must be determined by the ERA.
[14] Mr Dillon says that the ERA recognises equitable duties of good faith in every employment relationship, relying on ss 3 and 4, and he says a claim based on breach of fiduciary duty (the first cause of action) is a claim for breach of a duty of
good faith. In this respect he relies on Coutts Cars Ltd v Baguley,1 to which I will refer shortly.
[15] Mr Dillon says it was a term implied by law into Mr Wilson’s employment contract, as a prior and continuing employee, that he would comply with his duties as a director from the date of his appointment to that role. He says that Mr Wilson had a contractual duty to comply with the law, relying on Katz v Mana Coach Services Ltd2 and cases cited therein, which applied the principle that an employee will lose any right to an indemnity from his employer should he not comply with the law; therefore Mr Wilson owed a contractual duty under his employment contract to comply with his duties to Maclab as a director.
The case for Maclab
[16] Mr Galbreath says that although at all relevant times Mr Wilson was both an employee and a director of Maclab, the pleaded causes of action arise out of Mr Wilson’s position as a director, and the duties incumbent on him in that role. He says, relying on BDM Grange Ltd v Parker,3 that a claim against Mr Wilson as a director under s 131 does not relate to an employment relationship. He says the same applies to the cause of action under s 133, and to the claim for breach of his
fiduciary duty as director. Mr Galbreath says that if the transactions in issue could amount to both a breach of Mr Wilson’s employment contract, and to a breach of his duty as a director, then they can still be determined in this court.
Discussion
[17] In Pain Management Systems (NZ) Ltd v McCallum,4 Panckhurst J said this:5
[22] To my mind the core concept which is determinative of the exclusive jurisdiction of the Authority is whether the determination which is required is indeed about an employment relationship problem. In the words of the definition of that concept is the underlying problem one relating to, or arising out of, an employment relationship. I think it is important to distinguish between a claim which may have its origins in an employment
1 Coutts Cars Ltd v Baguley [2002] 2 NZLR 533 (CA).
2 Katz v Mana Coach Services Ltd [2011] NZCA 610, [2011] 9 NZELR 195 (CA).
3 BDM Grange Ltd v Parker [2006] 1 NZLR 353 (HC).
4 Pain Management Systems (NZ) Ltd v McCallum HC Christchurch CP72/01, 14 August 2001.
5 At [22]-[23].
relationship on the one hand, and a claim the essence of which is related to or arises from the employment relationship of the parties on the other. Is the issue in a particular claim an employment relationship one, or is the subject- matter of the claim some right or interest which is not directly employment related at all? In this regard it may be necessary to distinguish between situations where the opportunity to breach the right or interest at stake arose in the context of an employment relationship as opposed to those where some employment right or interest is truly at stake.
[23] It is in this sense that I find the judgment in Pike v Semi Plastics helpful, in particular for the focus upon the gist of the claim, the rights or interests asserted by the plaintiff as having been infringed. Where the subject matter is property rights and the claim is tortious, equitable or statutory it may be unlikely that the case is one within the exclusive jurisdiction of the Authority. Put another way where the rights or interest claimed by the plaintiff do not derive from a contract of service the general jurisdiction of this Court is unlikely to be ousted.
[18] In BDM Grange Ltd v Parker6 a Full Court undertook a comprehensive analysis of this issue. I need not repeat that analysis. For present purposes it is sufficient to observe that their Honours said:7
[66] … We express our essential agreement, at greater length, with the analysis of Panckhurst J that “relating to” in the definition of “employment relationship problem” must be read in a limited way to mean any cause of action, the essential character of which is to be found entirely within the employment relationship itself. This would not encompass claims arising from tortious conduct even if arising between an employer and employee, since the relationship merely provides the factual setting for the cause of action; the duty arises independently.
[19] It is, in my opinion, the distinction drawn by the Court between the factual setting for the cause of action, and the basis for the duty being imposed, that directs the outcome in this case. Here, the acts of Mr Wilson which are called into question occurred during the relationship of employer and employee, and on the pleading as it stands no final determination can be made on whether any given action could properly be described as having occurred by virtue of Mr Wilson’s role as a manager, or by virtue of his role as a director. It does not, however, matter for present purposes. All the actions arose during the time Mr Wilson was acting as both manager and director. That is the factual setting. But the duties imposed on him by law arise from the separate offices he held, as manager, and as director, and are
distinct.
6 BDM Grange Ltd v Parker, above n 3.
7 At [66].
[20] The Full Court made this clear in relation to a claim for breach of the duty imposed on a director under s 131:8
There is however nothing in the ERA to indicate that the existence of an employment relationship was intended to draw into the scheme of the ERA disputes arising as a result of the entirely separate obligations owed by a director in that capacity to the company. This is not an issue that turns on s 161 or any other part of the ERA. We do not consider that the claim against Mr Parker for breach of the s 131 duties can be said to relate even remotely to an employment relationship.
[21] BDM Grange Ltd was considered at length by Duffy J in RPD Produce Holdings Ltd v Miller.9 After citing the passage from BDM Grange at [66],10 her Honour said:11
[29] Whilst the Full Court was referring to claims in tort which are expressly excluded by s 161(3), I consider that their reasoning can be applied to equitable claims where the relationship of employer/employee also “merely provides the factual setting for the cause of action” rather than its genesis.
[22] Mr Dillon relies on decisions of the Employment Court where a “but for” test has been applied; by this test the question to be asked is whether the issue would have arisen but for the existence of the employment contract.12 However, I prefer the reasoning in Pain Management, BDM Grange and Aztec Packaging Ltd v Malevris.13 Apart from noting that the Court of Appeal in Kennedy v Rolling
Thunder Motor Company Ltd14 recorded that it was by no means satisfied that the
“but for” test was appropriate in that case, a point which the Court in the end left open, I respectfully consider that the logical analysis of the Judges in the three High Court judgments to which I have referred is compelling. I could not express my conclusion more clearly than their Honours already have.
[23] As well, interpreting the Act this way leads directly to a simple and legally sound resolution of one of the difficulties argued in this case. Mr Dillon says that all
8 At [77].
9 RPD Produce Holdings Ltd v Miller [2013] NZHC 705.
10 See above at [18].
11 RPD Produce Holdings Ltd v Miller, above n 9, at [29].
12 Waikato Rugby Union v New Zealand Rugby Football Union Inc [2002] 1 ERNZ 752 and
Kennedy v Rolling Thunder Motor Company Ltd [2010] NZCA 582, [2010] 8 NZELR 232.
13 Pain Management Systems (NZ) Ltd v McCallum, above n 4; BDM Grange Ltd v Parker, above n 3; Aztec Packaging Ltd v Malevris [2012] NZHC 243, (2012) 10 NZELC 79-003.
14 Kennedy v Rolling Thunder Motor Company Ltd, above n 12.
the transactions cited by Maclab could, if proven, equally be regarded as breaches of his employment contract and should be tested that way. I agree that they probably could, and were they brought before the Court as breaches of Mr Wilson’s obligations under that contract, it seems they would properly be the subject of proceedings in the ERA. But while the facts may well fall to be tested against those obligations on Mr Wilson’s part, and therefore in that forum, equally they fall to be tested against his entirely separate obligations as a director, in this court. Thus the analysis undertaken by the Full Court and by Duffy J plainly shows that it is the nature of the duties arising from the facts which governs the forum, not the facts considered in isolation. This, in my respectful view, also exposes the flaw in the “but for” test.
[24] As noted earlier Mr Dillon relies on Coutts Cars Ltd v Baguley for the proposition that obligations of good faith apply to both sides in an employment relationship. From this he drew the submission that a claim based on breach of fiduciary duty must be within the exclusive jurisdiction of the Authority. That does not, however, logically follow. An alleged breach of a duty of good faith under an employment contract is a claim for breach of an implied term under that contract and is within the exclusive jurisdiction of the ERA. The thrust of the Act is to place squarely and solely within the jurisdiction of the ERA claims arising out of
employment contracts.15 This does not mean, however, that all allegations of breach
of fiduciary duty are also contained within those parameters. Fiduciary duties can arise from a myriad of relationships, only one of which is called into play in the present case, the fiduciary duty that a director owes to the company he directs. That duty does not arise from Mr Wilson’s contract; it is separate and distinct from any form of fiduciary duty that may be implied into that contract.
[25] To suggest that there was an implied term in Mr Wilson’s employment contract that he would comply with the legal duties imposed on him as a company director is tenuous, at best. There is simply no ground for implying such a term, and to do so would conflate the distinct lines of duty established for employees and for
directors. I reject Mr Dillon’s submission that such a term should be implied.
15 See the extensive analysis of this in BDM Grange Ltd v Parker, above n 3.
[26] Finally, I refer to the emphasis placed by Mr Dillon on the pleading in paragraph 11 of the statement of claim, where the issues raised in this case are described as “financial anomalies in the day to day management” of the business at the time they were discovered. Mr Wilson’s case is that in reality Maclab is relying on breaches of Mr Wilson’s management duties but calling them breaches of his duties as a director. That is not determinative of this application. As I have said the duties owed by a manager under an employment contract are separate and distinct from the duties owed by a director whether in equity or under the Companies Act
1993. The same facts may give rise to different causes of action, and thus different fora for their determination. It remains the case that Maclab is quite entitled to allege that these facts give rise to the breaches of directors’ duties which are pleaded, even though it might have elected to bring the case on the basis of breach of contract. An examination of the events described in the statement of claim suggests that the alleged anomalies might equally have been described as arising in the operation of Maclab’s business, but viewing the document as a whole the meaning and intent of Maclab’s pleading is quite clear. This is because each of the three pleaded causes of action, which follow the pleading of the facts, makes specific reference to Mr Wilson having been a director of the plaintiff at the time, and to have owed each of the pleaded directors’ duties.
Outcome
[27] For these reasons the application to set aside the appearance is granted with costs to Maclab on a 2B basis together with disbursements fixed by the Registrar.
[28] A statement of defence is to be filed within 15 working days, after which the
Registrar is asked to convene a case management conference for consideration of further directions to take this case through to trial.
J G Matthews
Associate Judge
Solicitors:
Duncan Cotterill, Nelson.
Queen City Law, Auckland.
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